Low price, high supply upsets firm’s drilling plans

Williams has backed off plans to significantly expand its Piceance Basin drilling next year, citing continued softness in natural gas prices.

The company, which is running a dozen rigs locally, now is planning to operate 11 next year.

That’s half as many as company officials had been talking about earlier this year. But the 22-rig goal then was based on an expectation that prices would start to rise sooner than they are projected to now, company spokesman Jeff Pounds said.

In more recent months, the company gradually has been revising its drilling forecasts for next year as prices remained low. In September, it downsized its capital-expenditure projections for exploration and production for 2011 and 2012 because of the pricing concerns.

Williams nevertheless continues to drill more than during the worst of the drilling slowdown of recent years. Pounds said its local rig count fell then to a low of nine, from a boom-time high of 28.

Pounds said Williams continues to project companywide growth in natural gas production of 3 percent next year and 7 percent in 2012, as it rebounds from the drilling slowdown.

“Obviously the Piceance is a huge part of that” growth, he said.

Williams is the largest natural gas producer in the western Colorado basin.

In September, ExxonMobil said it plans to cut back its rig numbers from seven to two in Rio Blanco County over several months as it nears its initial local natural-gas-production goal.

However, EnCana Oil & Gas (USA) Inc. is working on adding three rigs to the six it is now operating in the Piceance. EnCana spokesman Doug Hock said it will add one in December, but delivery of two more will have to wait until next year because they are fit-for-purpose rigs still under construction.

Hock said EnCana also is reducing companywide capital investment, with gas prices factoring into investment decisions. He said he thinks the biggest reason for continuing low prices “is oversupply. There’s a huge supply of gas right now.”

That supply has been boosted by drilling in new areas such as the Marcellus Shale in the northeastern United States. Williams plans to increase its rig count there from three to six over the course of 2011, and the area soon will become its second-largest area of production, with the Piceance being the largest.

“We really see huge growth opportunities in the Marcellus,” Steve Malcolm, the company’s chairman, president and chief executive officer, told investment analysts during a conference call this week.

However, the company says its Piceance Basin operations still provide it with a high rate of return, as it continues to streamline its operations and make them more efficient.


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